I found myself remembering that joke when trying to make sense of the
Geithner financial
rescue plan. It’s really not clear what the plan means; there’s an
interpretation that makes it not too bad, but it’s not clear if that’s the right
interpretation.

The plan deserves praise for what isn’t in it, at least as far as I
can tell. There doesn’t seem to be provision for mass purchases of toxic waste
at premium prices; there also doesn’t seem to be a massive “ring-fencing”
guarantee against private losses on bad assets. In that sense the plan is better
than what the last few weeks of leaks led us to expect. ...

So what is the plan? I really don’t know, at least based on what we’ve seen
today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into
place.

Andrew Leonard echoes the theme:

Geithner fails to deliver; market swoons, Andrew Leonard: Judging by the
reaction of the stock market, Wall Street was very unhappy with Treasury
Secretary Tim Geithner's speech Tuesday morning outlining the Obama
administration's new strategy for resolving the financial crisis and "getting
credit flowing again." Ten minutes after the speech ended, the Dow had fallen
300 points and appeared to be headed further south. ...

Geithner started out strong, with a clear description of the plight we're in,
and a clear explanation of why government needed to take swift and strong
action. But, once again, the speech was short on details -- and no more so than
on the critical question of how the government will address the problem
of dealing with the toxic assets that have effectively rendered large portions
of the nation's financial system insolvent.

If there was a moment during the speech when investor sentiment crystallized,
it came when Geithner announced that "we are exploring a range of different
structures" to deal with precisely that issue.

At this point in the game, that kind of vague assertion simply won't fly.
It's all fine and good to declare that there is a plan for encouraging private
capital to reenter the markets, with assistance from government, and somehow
remove the busted mortgage-backed securities from the balance sheets of
financial institutions. But similar assertions have now been made for many
months, without any practical plan emerging for accomplishing such a task. When
Geithner said "we are exploring a range of different structures" he was
essentially admitting that we still don't have a clue how to do this. And that's
why Wall Street is panicking, again.

As for the rest of the speech,... Geithner's announcement that more details
will be revealed of the homeowner rescue plan in "upcoming weeks" was not very
illuminating. ...

Here's part of an interview from Bloomberg:

Interview with Secretary Timothy Geithner, U.S. Dept. of Treasury, Bloomberg TV,
Transcript, Interview by Peter Cook: ...MR. COOK: Let me ask you some of the
details of the plan you outlined today. Some of those details not totally in
place yet, I know, and I want to ask you about one of them. This idea of a “bad
bank,” you talked about a public-private partnership getting together to try and
take up these toxic assets that have troubled financial institutions for so long
now and locked up the system. Can you explain in any more detail how this is
going to work, because there are a lot of people out in the marketplace, even
after hearing you just a short time ago, still don’t know. ... Is the government
going to buy these assets? Are these private entities going to buy these assets?
And how are you going to value them?

SEC. GEITHNER: So let me do the basic concept and let me reassure you and the
markets as a whole that this is very complicated to get right. And we’re going
to try to get it right before we give people the details so that we don’t add
further to uncertainty in these markets. But our basic objective, and why this
is so complicated, is to try to make sure we’re doing it in ways that will
protect the taxpayer...

The basic concept, again, is because the markets now cannot provide the
financing necessary to get this to work – that’s sort of the definition of a
financial crisis in some sense – that the government will provide that financing
alongside some public capital in ways that bring private capital. And that is
important because it will help protect the government from the risk that we’re
taking on risk and assets we don’t understand, have valued too highly and are
leaving the taxpayer with more risk than they should have to bear in this
context.

That’s the challenge, in normalcy difficult to do, and we’re going to be very
careful to get it right. We may not get it right exactly at the beginning and
we’ll adapt it as we need to...

To me, Geithner's attempt at reassurance, that they're not quite sure how the
program will work, or if they will get it right, but be assured that they are determined to keep
tinkering with the program until it does work, has just the opposite effect. It undermines confidence. Why not wait until they actually have a plan before going public? Why were they in such a rush to reveal that they aren't sure what to do, or if it will work?

I found myself remembering that joke when trying to make sense of the
Geithner financial
rescue plan. It’s really not clear what the plan means; there’s an
interpretation that makes it not too bad, but it’s not clear if that’s the right
interpretation.

The plan deserves praise for what isn’t in it, at least as far as I
can tell. There doesn’t seem to be provision for mass purchases of toxic waste
at premium prices; there also doesn’t seem to be a massive “ring-fencing”
guarantee against private losses on bad assets. In that sense the plan is better
than what the last few weeks of leaks led us to expect. ...

So what is the plan? I really don’t know, at least based on what we’ve seen
today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into
place.

Andrew Leonard echoes the theme:

Geithner fails to deliver; market swoons, Andrew Leonard: Judging by the
reaction of the stock market, Wall Street was very unhappy with Treasury
Secretary Tim Geithner's speech Tuesday morning outlining the Obama
administration's new strategy for resolving the financial crisis and "getting
credit flowing again." Ten minutes after the speech ended, the Dow had fallen
300 points and appeared to be headed further south. ...

Geithner started out strong, with a clear description of the plight we're in,
and a clear explanation of why government needed to take swift and strong
action. But, once again, the speech was short on details -- and no more so than
on the critical question of how the government will address the problem
of dealing with the toxic assets that have effectively rendered large portions
of the nation's financial system insolvent.

If there was a moment during the speech when investor sentiment crystallized,
it came when Geithner announced that "we are exploring a range of different
structures" to deal with precisely that issue.

At this point in the game, that kind of vague assertion simply won't fly.
It's all fine and good to declare that there is a plan for encouraging private
capital to reenter the markets, with assistance from government, and somehow
remove the busted mortgage-backed securities from the balance sheets of
financial institutions. But similar assertions have now been made for many
months, without any practical plan emerging for accomplishing such a task. When
Geithner said "we are exploring a range of different structures" he was
essentially admitting that we still don't have a clue how to do this. And that's
why Wall Street is panicking, again.

As for the rest of the speech,... Geithner's announcement that more details
will be revealed of the homeowner rescue plan in "upcoming weeks" was not very
illuminating. ...

Here's part of an interview from Bloomberg:

Interview with Secretary Timothy Geithner, U.S. Dept. of Treasury, Bloomberg TV,
Transcript, Interview by Peter Cook: ...MR. COOK: Let me ask you some of the
details of the plan you outlined today. Some of those details not totally in
place yet, I know, and I want to ask you about one of them. This idea of a “bad
bank,” you talked about a public-private partnership getting together to try and
take up these toxic assets that have troubled financial institutions for so long
now and locked up the system. Can you explain in any more detail how this is
going to work, because there are a lot of people out in the marketplace, even
after hearing you just a short time ago, still don’t know. ... Is the government
going to buy these assets? Are these private entities going to buy these assets?
And how are you going to value them?

SEC. GEITHNER: So let me do the basic concept and let me reassure you and the
markets as a whole that this is very complicated to get right. And we’re going
to try to get it right before we give people the details so that we don’t add
further to uncertainty in these markets. But our basic objective, and why this
is so complicated, is to try to make sure we’re doing it in ways that will
protect the taxpayer...

The basic concept, again, is because the markets now cannot provide the
financing necessary to get this to work – that’s sort of the definition of a
financial crisis in some sense – that the government will provide that financing
alongside some public capital in ways that bring private capital. And that is
important because it will help protect the government from the risk that we’re
taking on risk and assets we don’t understand, have valued too highly and are
leaving the taxpayer with more risk than they should have to bear in this
context.

That’s the challenge, in normalcy difficult to do, and we’re going to be very
careful to get it right. We may not get it right exactly at the beginning and
we’ll adapt it as we need to...

To me, Geithner's attempt at reassurance, that they're not quite sure how the
program will work, or if they will get it right, but be assured that they are determined to keep
tinkering with the program until it does work, has just the opposite effect. It undermines confidence. Why not wait until they actually have a plan before going public? Why were they in such a rush to reveal that they aren't sure what to do, or if it will work?